India Shares End at 19-Month High

By

Raghavendra Upadhyaya

Updated Nov. 29, 2012 7:12 a.m. ET

MUMBAI--Indian shares ended at a 19-month high Thursday, after Goldman Sachs upgraded Indian equities to overweight from market-weight, citing a recovery in external demand and moderating inflation risks.

Indian shares started rising earlier this week after Moody's Investors Service Tuesday reiterated its stable outlook on the country's sovereign rating.

The Bombay Stock Exchange's 30-stock benchmark Sensitive Index rose 328.83 points, or 1.8%, to close at 19,170.91 points. It last closed above this level on April 28, 2011, at 19,292.02 points.

On the National Stock Exchange, the 50-share Nifty index ended 97.55 points, or 1.7%, higher at 5,825.00.

"For India, we believe the upside drivers include a recovery in growth, a decline in inflation, and the potential for continued policy reforms," Goldman Sachs said in its report.

"While we acknowledge that the recovery in growth and deceleration of inflation may not be imminent, India is less affected by the near-term concerns of the U.S. 'fiscal cliff' relative to other markets in Asia in our view," said Goldman Sachs.

Goldman Sachs expects the NSE Nifty index to reach 6,600 by the end of December 2013.

It said the current MSCI India Index valuation of 13.4 based on the expected 12-month earnings of its component companies is well below its five-year average of 14.9 times. This affords an attractive entry point into one of the "stronger structural growth stories" in the region, said the house.

Dealers said that the combination of positive news along with signs that a standoff between the government and the opposition in parliament may end soon--which could speed up the reform process-- will boost investor sentiment toward the local market.

"The quick recovery in the rupee versus the dollar and the strong buying data in local shares indicate a strong stock market," said Janak Mehta, director at FRR Shares & Securities.

The dollar was last trading at 54.83 rupees, compared with 55.45 rupees in late trade Tuesday. Foreign institutional investors made net purchases of 10.83 billion rupees of local shares Tuesday.

India's stock and currency markets were closed Wednesday for a holiday.

Mr. Mehta said that investors will be keenly waiting for institutional buying data for Thursday, but there is no reason for a quick reversal in shares.

The BSE Bankex index rose 2.8%, outperforming the Sensex and contributing largely to the benchmark's rise.

ICICI Bank closed 4.6% higher at 1,081.75 rupees, while HDFC Bank ended 2.7% up at a record 698.75 rupees after hitting an intraday record of 703.50 rupees. Mortgage firm Housing Development Finance was up 3.0% at 821.00 rupees.

Among other gainers, engineering major Larsen & Toubro was up 2.6% at 1,662.00 rupees and Tata Motors was up 4.5% at 278.25 rupees.

Infosys fell 1.0% to 2,444.85 rupees. The stock had rallied from its Nov. 15 close of 2,294.10 rupees as the local currency was falling versus the dollar.

Software companies get most of their revenue through exports and a weaker local currency aids their performance.

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